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We Got a Bailout So Why is the Market Down?
By JLP | October 6, 2008
Last week, I wrote THUD! when the market was down supposedly due to the failure of bailout package. Reader, Bozo, even left this comment:
JLP: Weren’t you the guy advocating a resounding “NO” vote on the bailout? Well, you got it. In the rear.
Hope you got a lot of cash under the mattress.
Bozo
Well, the bailout ended up passing and yet the market is down further—much further. What gives? Bozo?
I think people have realized that we’re not going to be able to manipulate our way out of this mess—that it’s going to take time for things to work themselves out. I think that’s what we’re seeing in the market right now. It does represent a great buying opportunity if you’re in for the long-term. In other words, don’t buy in now thinking you’re going to make a killing in six months.
What are your thoughts? Why do you think the market’s tanking right now?
Topics: Housing Market | 19 Comments »
October 6th, 2008 at 1:02 pm
Things haven’t changed people are still looking for the easy(quick) way out. We all have to realize it’s not business as usual. Changes are going to happen. We have to take responsibility for our finances.
October 6th, 2008 at 1:08 pm
The market problem continues now because other countries are dealing with the same credit issues that the US has now already dealt with.
And the other looming issue for investors is… How is the Federal Government going to raise $1.5 Trillion in the next 12 months?
The 2009 federal budget is planned for $485 billion deficit plus $1 Trillion of bailouts and and $140 billion for the war in Iraq.
Treasury bond rates must go up and that means stock sell off to buy high interest secure government bonds.
October 6th, 2008 at 1:24 pm
All the baby boomers have suddenly realized that the market is no place for their retirement money and are pulling out.
October 6th, 2008 at 1:57 pm
We should have let the free market figure it out. Sure, we would get a free fall in stocks, but we are getting that now. So what’s the difference? The difference is that the government will spend our money now to do what? Nothing.
October 6th, 2008 at 2:19 pm
This was a great post! There is so much turbulence in the market today, and people need peace of mind more than ever. I wanted to offer your readers a link to another blogger who is doing great work. He writes about our ‘childhood money messages’ and how the best approach to stability in today’s market is to resist letting these emotions control our buying/selling habits. It is really fascinating work, and something you should all check out. His name is Spencer Sherman, and you can view his blog at http://www.curemoneymadness.com/blog.
October 6th, 2008 at 2:30 pm
The market (IMHO)is down despite the bailout because credit is still hard to come by, and investors are reducing levels of credit to compensate.
Surely no one expected the bailout to magically fix everything overnight? If they did they were deluding themselves. Everything I’ve read suggests this “problem” will still take a couple of years to sort itself out, it’s just with the bailout it won’t be as bad as it could have otherwise been.
October 6th, 2008 at 2:32 pm
John McCain just now “I’ll confront the 10 trillion dollar debt.” This from the guy who just voted for an additional $840 Billion?
At any rate – investors are realizing the bail out wasn’t for them. It wasn’t going to fix the market. The issue with the bail out was credit, not the overall economy. People don’t want to spend (or can’t spend) money to grow business earnings when times are tough like they have been. The credit “crisis” has created an unnecessary panic, and I think that will have an effect on the market for months to come.
October 6th, 2008 at 3:11 pm
This bailout is just one more example of the indivisible handjob stroking irresponsible CEOs and CFOs with billions so that they can run the American economy even further into the ground. So much for Keynesian economics. If the goal is to stimulate the economy, why not give the money directly to the American taxpayer? A bird in the hand is worth two in the bush administration.
October 6th, 2008 at 3:49 pm
Buffett said something to the effect of, “be fearful when others are greedy and be greedy when others are fearful.” This down turn is providing some nice buying opportunities that will pay off down the road. Corrections always happen after a big run up. The world is not going to end. In a year or two things will be running up. Just look at the market historically. We have recessions followed by increasingly longer runups.
October 6th, 2008 at 6:47 pm
You cannot tie the market’s daily performance to any one news story. If you listen to more than one news source, you will hear multiple and disparate explanations of the daily market action. However, we are either in or about to enter a recession of unknown severity and duration. Normally, a recession causes a bear market which entails at least a 20% and often a 30-40% reduction in major indices. In this case, the recession is probably cause by or aggravated by the subprime credit crisis. This crisis is addressed to some extent by the “bailout” which will have an unknown salutory effect – i.e., it may or may not mitigate the extent of the recession. Still, the economic reality is a recession is imminent, a bear market is extant, and what happened last week in Congress is pretty much irrelevant to market action. The fire sale is on!
October 6th, 2008 at 7:10 pm
Kin said it right – the bailout was to unfreeze the credit markets, but it wouldn’t happen overnight. But credit freeze is already having effect on businesses now and will affect earnings for some time. Just last week of credit freeze hurt businesses, and credit markets are still frozen. The bailout was put in place so that maybe instead of depression we’ll get a couple years of recession.
There was an interesting section on 60 minutes this Saturday about how we got into the credit mess: how it is not just about failed mortgages – only about 5% of total mortgages failed – but about this whole market for mortgage-back securities and derivatives based on mathematical models. Also credit default swaps – a type of insurance for these obligations which was not called insurance to avoid regulations. We also had a lecture at work about the current crisis and information technology – I work for a major IT company in research, so they thought it would be interesting. I missed it, but a co-worker went. Apparently they explained all these models in details. He has a PhD in physics and knows math very well too, but even he said some of these models were hard to understand. He told many of these math models were based on premises that while the probability of one sub-prime mortgage failing is high, the probability of several of them failing in this package is low and so on. So while one mortgage was rated D, after they applied these formulas they would rate the whole package of them AAA. Kind of alchemy – turning lead into gold. The main problem though was that math models don’t quite take human emotions like panic into consideration. As well as the possibility of declining real estate market, and its effect.
The same program on 60 minutes showed an example of how frozen credit markets affect businesses: McDonald was denied a loan by Bank of America. I’d bet McDonald is a whole lot better off financially than Bank of America even if Bank of America is one of the “better” banks.
I also heard on the radio today that New Jersey is having trouble finding buyers for its bonds.
October 6th, 2008 at 11:02 pm
Many of the other comments mention why the market continues to slide due to the financial / credit crisis. However, this is NOT the bottom. Our wonderful gov’t has gotten us into a serious pickle and will not be able to “Bail” us out any time soon. Today’s poll showed 60% of Americans believe we are heading for a depression meaning most Americans and experts now agree that we are in a recession.
$700 Billion. Where does it get us? Nowhere. Another $900 Billion being pumped into the financial system. What did that do for us? Tanked the market 800 points intraday. I’ve now lost over 15% in my retirement accounts (assuming they are index funds) in less than two weeks. So, it’s OK to bail out the institutions that caused all of this havoc in the first place and pay the Executives millions of dollars? What about the average person that now has to work longer or return to work because their retirement savings were killed? Apparently, our politicians don’t really care about the every day person. At least not yet.
October 7th, 2008 at 12:01 am
On an entirely unrelated subject, a question for the host–are there still plans to host a discussion of Napoleon Hill’s “Law of Success” on this blog? I thought that was supposed to begin today, am I not looking in the right place?
October 7th, 2008 at 1:50 am
Why is the market still tanking, you ask? Possibly too complicated to answer, but I suspect that (a) realizing we’re still stuck and (b) realizing the rest of the world is still stuck too has something to do with it.
Really, though, it could be tied up in the solution. Which is, in my opinion, first purge the U.S. government of the imbeciles who helped get us into this mess with their promises to do the inverse and years of feeding off the gullibility of increasingly desperate middle Americans.
That means Bush and anybody remotely like him has got to go. A President McCain, for instance, would be the death knell for world markets for a lonnng time to come.
Then get us out of Iraq. Strategically and maybe slowly. But get us out. Stop the spending, reconsolidate our military, and reestablish what we can of America’s moral authority (if that’s not now an impossible oxymoron).
Tighten the dollar up again. And tackle the debt. We’re already in the throes of a meltdown, so do it now while the pain that will demand can co-mingle with the rest of it. Kind of ripping off a band aid fast rather than slow.
Taxes on the wealthy, alas, have to go up (that includes me, by the way). With the irony being that they have to go up because the political party that made sure the rich got richer in the short-term is the same that has forced us to have this price to pay now. And only the rich have the money in their pockets to do it.
Extend the retirement age. Leisure is dead for awhile. Early retirement? Forget about it. There’s a generation that may never be able to retire.
These solutions aren’t pretty. But then, what did we expect. Dawn always comes. Parties always end. If you’re going to spend all night doing body shots off the belly of the Statue of Liberty, how could you imagine you’d wake up with anything BUT a big fat hangover?
October 7th, 2008 at 11:05 am
The market always over extends one way or another. When things are good, the market runs up faster than it should (tech bubble, anyone?) but when there’s negative news, everyone seems to want to jump ship at once.
I think that the fact that this hit globally is what sent the market down this time. But, with the fact that we’re in a global economy, were investors really that surprised?
October 7th, 2008 at 6:26 pm
The problem is, and this is baffling, nothing has been done yet even though the bailout passed. Everyone was saying this thing needed to pass right away, and yet, we had a large delay. What baffles me is in the intervening period of the bill debate, why the hell didn’t Paulson have the mechanisms already in place or a plan of action already in place? He is now taking his merry time finding and placing advisors, and researching plans. What the hell? What have they been doing during the past two weeks?
In the mean time, the dominos have started to fall as they said they would without the bailout money being effectuated. the dominos have started to fall internationally and all of this is happening at a time when companies are reporting 4th quarter earnings. then you got idiots like Jim Cramer telling everyone to panic, then you got something called the short sale ban being lifted after Wednesday. Lots of things culminating once again into a perfect storm. so why are the markets still unstable and diving and why are the credit markets still frozen? because the bailout came too late and because dumb ass Paulson was twiddling his thumbs for two weeks rather than getting things lined up for when the bill did pass. I guess the bill wasn’t so urgent after all, or was it since the markets are falling.
yes, i’m buying more, but what the hell?
October 8th, 2008 at 11:35 am
Because nothing has changed. We are still in the same situation as we were and people are continuing to panic. Color me surprised.
If our economy is a bleeding wound, the bail out bill is a band aid. It makes you feel better, but you really just have to wait for the blood to clot.
October 8th, 2008 at 2:31 pm
All Financial Matters is an excellent blog and the bail out is a topic worth discussing.
I wrote a two part series about the bail out on my blog (www.onemillionbucks.net). I’d love to know what you think about it?
November 13th, 2008 at 1:02 pm
AMAZING!!! That’s all I have to say about the whole topic. AMAZING!!!